Sometimes Microsoft buys its way into a market, and sometimes it programs its way in. In the case of Dynamics, it has done a little of both.

The Dynamics franchise was pieced together from four financial/ERP/supply chain tools Microsoft purchased separately, including Axapta, Great Plains, Solomon and Navision. While these tools came with different interfaces, capabilities and features, there was a significant amount of overlap among them in terms of their core financial functions -- so much so that any one of the four ERP tools could be used interchangeably.

"The reason we bought [Navision and Great Plains] is they bring 20 years of experience to things we did not know enough about. There is a chasm between pure infrastructure and business applications. We have a substantial knowledge base on collaboration and productivity apps like Office and Exchange, but we didn't have knowledge or expertise in infrastructure and business processes," says Davide Vigano, general manager of Microsoft's Worldwide Midsize Solutions team. "We are trying to put these two worlds together with a people-centric view of things."

So far Microsoft has settled on the pricing and branding strategies for the products, has created a common interface approach and has crafted a strategy that will result in a single line of tools by early next decade.

More importantly, the company has decided the mid-market will be the focus for these products and promises to apply its full corporate weight to the mission. But the mid-market will not be its only target. Microsoft will also aim Dynamics at businessesin remote locations, as well as using it to integrate larger ERP systems like those from SAP AG and Oracle Corp. with newer functions and to tie in some capabilities of the Microsoft stack including Office, SQL Server and SharePoint.

If Microsoft can pull this off, it will bring sophisticated ERP capabilities to a market that otherwise could not afford to buy them nor handle their technical complexity. Oh, and not to mention, it would make a mountain of money for itself.

"The IT industry, the software industry in particular, has had a hard time serving midsize businesses because they either serve them with an enterprise solution which doesn't fit their needs, or they try to serve them with a small business solution that doesn't scale. The bottom line is these 1.4 million [midsize] businesses worldwide have the same complexity as an enterprise but just a few more resources than a small business," says Microsoft's Vigano.

The Microsoft Business Solutions (MBS) division is already driving over $1 billion in revenue per year, has solid profits and is exhibiting impressive growth. But, to keep the unit's momentum rolling, the company will have to practice the fine art of gaining new users and partners at the expense of losing existing ones.

"The trick is to not only acquire new customers and partners without alienating existing ones, but researching and developing four overlapping products and then managing the eventual transition, which could be a costly proposition. But if any company is positioned to operate through that kind of inefficiency, it would be Microsoft," says Chris Alliegro, an analyst with Directions on Microsoft in Kirkland, Wash.

Four Flavors of ERP
But buying its way into the ERP space has resulted in Microsoft having a fundamentally fragmented product line, a problem that will take it years to resolve. Microsoft's long-term strategy is Project Green, a plan that will create one ERP platform blending the best features of all four. Based on the original Project Green plan, there should have been a single, unified tool delivered already -- but the company discovered that reshaping these huge applications is not so simple.

Project Green originally aimed for a common ERP platform by 2005 or 2006; however, Microsoft reset expectations this year. The company also reshaped its original single plan with two main phases. Phase 1, to be complete by next year, focuses on building new Web services, tying the products to tools like SharePoint and SQL Server, sharing development tools such as Visual Studio and C++ and adding common workflow features. On the interface side, Microsoft is building a common client that includes elements of Office 2007 and Vista.

In the next two years work will start in earnest on the unified ERP platform, work that could stretch into the next decade. It realistically may not be until 2010 or beyond before that single product arrives.

In the meantime, however, Redmond has been busily unifying the interfaces, creating common underlying components and architectures, creating tighter integration among the four products and tying them all more deeply into the Microsoft stack.

The star of Project Green seems to be Dynamics AX (Axapta). The smart money says the unified product figures will look and feel more like AX than anything else. Once the single platform arrives, Microsoft can spin off versions of the core platform for vertical markets.

But Project Green's been slippery as a Louisiana snake.

"Getting to a single ERP product from the four ERP products is still the goal. They are making some steady progress, but it'll be a long road with most of the big challenges probably still in front of them. However, Project Green as we originally knew it, a ground-up rewrite of the features and functions in the four separate ERP products, is for all intents and purposes dead," says Alliegro.

Instead, according to Alliegro, Microsoft has decided to base the consolidated product on the internals of AX and to augment it with capabilities from the other products. This will prove to be a lengthy process given that Microsoft will have to rewrite all of that supplemental functionality so it works with AX, he contends.

Should You Consider Dynamics?
If you are in the mid-market, Dynamics should at least be on your radar. In the opinion of some industry analysts, it gives mid-market companies what they see as some distinct advantages over SAP and Oracle.

"Dynamics has an advantage in terms of its .NET platform and architecture. The mid-market is looking at the cost of ownership. Many organizations are having an easier time finding skilled resources in .NET and other Microsoft technologies," says Ray Wang, principle analyst at Cambridge, Mass.-based Forrester Research Inc. "A typical Microsoft shop should consider applications that run on .NET frameworks like Dynamics because it's very difficult to support more than two middleware platforms," he says.

Directions on Microsoft's Alliegro takes a slightly different view.

"There isn't so much a technical advantage as an ease-of-use and ease-of-integration advantage. Things like working their knowledge and expertise around the UI and into the ERP products is a big selling point. I wouldn't say Microsoft does the world's best job of talking in a language average small or midsize business owners can understand, but they're probably better at it than SAP or Oracle," says Alliegro.

The cost of both the products and their maintenance is another factor that makes Dynamics more attractive than offerings from SAP and Oracle, most analysts agree. But in the final analysis Dynamics and its competitors, particularly SAP, are very different beasts.

"Comparing SL to the big SAP is like comparing an 18-wheeler to a freight train: They both move freight [data] but the way they do it is completely different. SL comes off the CD ready to start working. It is our understanding that the big SAP R/3 is a toolset that requires consultants to put together a system that will do something," says Price Brattin, with Bueno Software.

Choosing the Right Dynamics Suite
A dilemma prospective customers face is which Dynamics product to buy. If you make flour, for instance, and you go to the Microsoft Business Solutions Web site to find what tool is right for your business, there is no clear grid that identifies precisely what you should buy. Truth be told, all four Dynamics products are discussed as islands and not clearly compared to one another.

Instead, customers are often pitched the tool that the VAR or integrator happens to know and can tailor to your business.

"Now it's much more complicated. The capabilities of the software have increased significantly and each Dynamics brand has substantial overlap in capability. It's like the overlap in capabilities that GM has in its Chevrolet, Buick, Pontiac, and Cadillac brands. They are all cars that essentially do the same thing," Brattin says.

Brattin adds that Microsoft is attempting to differentiate the Dynamics brands but says the real difference shows up in how the software functions are performed by the user. Another differentiating factor is that each brand has some capabilities that are clearly superior to the others.

"For example, SL has the best project, cost accounting and management tools of the four products. That capability has been leveraged by some ISVs to make SL a formidable competitor in the manufacturing software marketplace," Brattin says.

Customers' Thumbs Up
Brattin, who says, "I'm a big fan of Microsoft Dynamics GP [also known as Microsoft Business Solutions Great Plains]"and other users appear generally pleased with their decision to go with Dynamics.

"We have been on GP for almost 10 years and are very happy with the product. We are able to do most of our customizations in-house with the Dexterity tool. I love the fact that it runs in [Microsoft's] SQL, a product that has been very reliable for us. I would recommend GP to any small to midsized company looking for a powerful ERP system," says Robert Collins, a database administrator for a printer parts vendor in Madison, Wisc.

Coop-etition

Microsoft and its biggest ISV partners have always had complicated relationships. Sometimes they work together -- other times they fight like junkyard dogs. The ERP space has all this drama and more.

Helping to avoid World War III, Microsoft has been careful to avoid positioning Dynamics directly against SAP, the idea being that SAP can have the already-saturated enterprise market while Microsoft aims at the notch just below.

SAP returns Microsoft's loyalty by supporting Office as a front-end and SQL Server on the back. It all seems to work, more or less -- for now. Sure, there's conflict, but it's far from all-out combat.

"It's a balancing act and probably the way to look at it is to follow the money. Take the Duet (this allows Office to serve as a front-end for SAP data and processes) collaboration, for instance. Duet probably makes SAP a better competitor to AX in that gray mid-market-enterprise area (the space between the mid-market and low-end of the enterprise market), which of course is bad for AX. On the other hand, keeping Office viable and figuring out ways to push customers to upgrade is a bigger strategic imperative for Microsoft than incremental sales of AX. Microsoft stands to gain way more financially with the former strategy than they'll lose in AX sales," explains Chris Alliegro, an analyst with Directions on Microsoft.

Oracle, meanwhile, is another story. This longtime rival is far less of a partner. -- D.B.

For Great Plains user Joe Muller, the experience has also been good. Muller's company was looking for a financial solution and it came down to Great Plains or Oracle. Great Plains got the nod because it was "cost effective for workgroup size" and because "the Oracle front-end was unreliable," Muller says. The decision was driven by the accounting department while IT explored the alternatives.

While satisfied, Muller would like to see "better tracking for SOX, a more intuitive interface and better reporting."

Stan Vaniger has a love/hate relationship with Dynamics AX. Fortunately there is more love there than hate.

"It is so complex and flexible and versatile that it is a major chore to implement. We have been in the process of setting up Dynamics AX [actually Axapta 3.0] and importing our legacy data for over a year now and we are still not ready to go live. We have heard -- and now believe it -- that a one to 1.5 year implementation is typical," says Vaniger, Programmer Analyst for LMC Industries in Arnold, Mo.

On the other hand, Vaniger loves the development side. "The development environment is incredible. My first thought when seeing the AOT [Application Object Tree] where all development is done was, 'How can any serious development work be done in such a simple environment?' But the power lies in the simplicity and efficiency of the design."

The CRM Edge
One Dynamics CRM customer is happy with his decision. GreenStone Farm Credit Services was already a happy Great Plains customer when it adopted Dynamics CRM.

"In late 2003, we were in the market for a customer relationship management package. We chose Microsoft CRM because of its tight integration with Microsoft Office [Outlook] and because of the level of customization available," says Dominic Roberts, director of Information Services for GreenStone.

And what was the business case?

"We had recently completed a market segmentation and part of that revealed that most of our IS systems were loan-centric rather than customer-centric. Microsoft CRM was functionally and symbolically the beginning of putting our customers at the center of all of our systems," Roberts says.

GreenStone and the rest of the IT department looked at two other tools, Pivotal and Sales Logic. While Roberts appreciates the "reduction of dual entry, consolidation of customer data and higher customer service," he would like to see better marketing capabilities and better performance.

Roberts has advice for prospective CRM customers: "Make sure you find the right partner and don't shortchange the planning and design," he says.

The Channel
One major difference between Redmond and its high-end ERP rivals is their respective approaches to sales. Oracle and SAP are big on direct sales, while 97 percent of Microsoft's sales are touched by the channel. Microsoft presently has 10,000 partners that offer and support Dynamics, and recently has been signing up large integrators including Wipro Ltd. and Capgemini. The keys to Microsoft's success appear to be in recruiting partners for Dynamics and in its ability to remain tuned in to the ongoing needs of smaller companies.

"The vast majority of Dynamics' customers are small or midsize companies, often with a regional focus. Those companies are supported by a network of resellers, which are also small and with a regional focus, so they know you as a business and are familiar with your market," Alliegro says.

Moving on Up
At first glance Microsoft's mid-market strategy seems simple. Upon closer inspection, however, it's a bit more sophisticated. Microsoft's lineup of products are innately designed to suit the needs of most mid-market IT shops, whereas SAP and Oracle often struggle to compete in this space with their larger, more expensive and technically complex products. Also, when Redmond goes after large enterprises, the assumption is that SAP or Oracle is already installed, so Microsoft aims at those companies' subsidiaries and branch locations.

"We see a lot of interest [among larger accounts] for Dynamics because of the ease of deployment and the flexibility of the solutions we can provide there, especially Dynamics AX line. But we're not focusing on the very largest enterprises. This is not a product for General Electric, but it could be one for those companies that are the children of GE," says Microsoft's Vigano.

Some analysts, however, see Microsoft making a full frontal assault on the enterprise. They believe the evolution in capabilities of the Dynamics line has reached the point where they are more than acceptable for corporate use.

"Dynamics is ready to move beyond the mid-market. Forrester defines the enterprise market as having over 1,000 employees and Microsoft's Dynamics products are certified for more than 1,200 concurrent users. From a feature basis, the products have made significant progress," Forrester Research's Wang says.

But some are not as optimistic about Dynamics' fortunes at the upper reaches of the enterprise. Some industry observers contend that Microsoft likely does not have a fully formed strategy to directly compete against Oracle or SAP in the ERP market, nor does it have the properly trained sales force or properly engineered products to do so.

"I'd also expect that could change over time if Microsoft emerges as the hands-down mid-market ERP leader.At that point, I'd say all bets are off and I wouldn't be surprised to see Microsoft make a more focused run at the enterprise market," Alliegro says. (Redmond Editor Ed Scannell contributed to this report.)